American revival spurred by upbeat results

Confidence in the revival of the American economy received a boost yesterday as a string of large companies led by telecommunications firm AT&T and drugs group Bristol-Myers Squibb reported generally upbeat quarterly earnings while several delivered large dividend increases.

The tone from the corporate sector helped to push share prices higher on Wall Street, with the Dow Jones up 35 points at 9229 in mid-afternoon trading. The Nasdaq index, which is more heavily weighted towards volatile technology stocks, was almost 1% higher at 1279.

Encouraging weekly data on unemployment also helped. The US labour department said the number of Americans filing new claims for unemployment insurance fell by 29,000 to 386,000 last week. It was the lowest figure for five months and most economists had expected the number to be at least 400,000.

The labour department itself warned against reading too much into one week's numbers, but Wall Street traders reported that fund managers were interpreting the unemployment trend as a further signal to switch assets out of bonds and into shares.

AT&T was one of the major share price gainers as it reported second quarter profits of $536m, compared to a loss a year ago of $12.8bn, when its performance was hit by restructuring costs.

The group said revenues fell 8% because of pricing pressure and weak demand for fixedline telephones, but investors were still encouraged by AT&T's decision to lift its dividend 27%. Many large US companies have made similar moves since Congress approved President George Bush's plan to cut taxes on payments to shareholders.

In the pharmaceuticals sector, Eli Lilly said quarterly earnings rose 5%, with Zyprexa, its best-selling treatment for schizophrenia, achieving sales of over $1bn in the three months.

Rival Bristol-Myers Squibb, which has launched its own schizophrenia drug, rebounded with a 22% rise in prescription drugs in the US; the comparable period a year ago was undermined by an inventory scandal.

In the chemicals sector, Dow's profits rose 65% as it reaped the benefit of cost cuts and price increases. Two consumer businesses also contributed to the upbeat mood. MBNA, the second largest issuer of credit cards in the US, saw second quarter earnings rise $85.5m to $543m, and it joined the dividend revolution with a 25% increase.

Reebok, the biggest competitor to Nike, said it was on course to achieve a 15% profit rise this year. Its performance is being powered by domestic demand - US sports shoe sales rose 9% in the second quarter and Reebok's order book for delivery over the second half of this year stands 14% higher than a year earlier.

One of the biggest shareprice advances came in the technology sector. Computer Associates was up 15% in early trading as it swung from quarterly loss to profit.

But the good news was not universal. Safeway, the supermarket chain that is unrelated to the British group of the same name, saw quarterly profits almost halve as it cut prices to try to compete with Wal-Mart, the industry leader. It was the latest in a long line of poor results from the thirdlargest grocery business in the US. The company said theft from its stores was an additional factor.

Lockheed Martin, the defence contractor, saw a 29% drop in earnings but said its order book was running at record levels and lifted its forecasts for cashflow and full-year earnings. Raytheon moved into profit, but comparable earnings were down as its pension costs soared.